“The industry is not sustainable at $1,230 an ounce, which is where the gold price is at the moment,” Holland said today in a telephone interview. “We’re going to need at least $1,500 an ounce to sustain this industry in any reasonable form.”
Gold entered a bear market in April on signs the U.S. economy was improving and fell further this month as Federal Reserve Chairman Ben S. Bernanke signaled he may slow bond purchases should the U.S. recovery continue. The plunging price of bullion is squeezing producers who spent $195 billion on acquisitions in a decade-long price boom that peaked in 2011, when prices reached $1,900 an ounce.
The decision by Newcrest Mining Ltd. (NCM), Australia’s biggest producer, to write down the value of its mines by as much as A$6 billion ($5.5 billion), will lead to the biggest one-time charge in gold mining history. Rivals such as Barrick Gold Corp. (ABX), the biggest producer, and Newmont Mining Corp. (NEM) may be next, according to Jefferies International Ltd.
“There’s going to be significant rationalizing in the gold industry,” Holland said. “You can’t keep mines producing if they’re losing money.”
Gold Fields’s South Deep mine in South Africa is one of the few mines that could survive at the current gold price of 1,230 an ounce, Holland said. The mine’s size and the fact that it’s largely mechanized, meaning it’s less reliant on labor demanding pay rises, will help keep costs low, he said.
The Bloomberg Research Global Mining & Exploration Index has fallen 41 percent since April 9, while gold has dropped 22.3 percent amid its biggest three-month decline on record.
Andy Lloyd, a spokesman for Barrick and Omar Jabara, a Newmont spokesman, declined to comment on potential writedowns earlier this month.
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